Wednesday, October 21, 2015

Realtors and Community Association Managers provide valuable
real estate services to sellers and buyers of real estate, as well as managing
homeowners and condominium associations respectively. However, in providing their respective
services, they frequently have issues that have substantial legal ramifications
in connection therewith and, in providing advice and opinions on same, run the
risk of being accused of the unlicensed practice of law. Knowing what is
permitted and what requires specific use of a licensed attorney is important
for both Realtors and Community Association Managers.

For Realtors
there is a substantial dichotomy between drafting contracts and drafting
leases. The Florida Supreme Court held in 1950 in the case of Keyes Co. v. Dade County Bar Association
that the drafting of the real estate contract by a licensed realtor who was a
party to the transaction did not
constitute the unlicensed practice of law. In 1992 the Supreme Court was asked
if the drafting of a lease constituted the unlicensed practice of law and while
the Supreme Court declined to specifically state so, they did adopt a formal
lease which appears to restrict drafting of leases by Realtors without legal
counsel except by utilizing the Florida Supreme Court approved forms.

Notwithstanding
the right to draft contracts, Realtors can cross the line when they modify
preapproved forms adopted by the Florida Realtors Association or the Florida
Bar. In addition, the drafting of a substantive addendum to said form contracts
can also lead to a claim of unlicensed practice of law. Realtors should err on
the side of caution and avoid making any material, substantive changes to the form
contract or an addendum unless aided by a licensed attorney. Further, other than filling in the blanks on
the Florida Supreme Court approved lease forms Realtors should not make any
changes to the approved lease or utilize any other form lease unless done by a licensed
attorney.

In 1996, the
Florida Supreme Court issued an opinion regarding the activities of Community
Association Managers. That opinion
specifically set forth a number of areas in which the activities of a Community
Association Manager would constitute the unlicensed practice of law. These
activities included drafting of a Claim of Lien, preparing a Notice of
Commencement, determining the timing, method and form for giving notices of
meetings, determining the amount of votes necessary to approve any changes to
the governing documents, and advising on the application of any statute or
rule.

That opinion resulted in some
confusion, and the Florida Bar Real Property, Probate and Trust Section (FRPTL)
petitioned the Supreme Court to clarify that opinion regarding the areas or
activities which, if completed solely by a Community Association Manager, would
constitute the unlicensed practice of law. The Florida Supreme Court confirmed
the 1996 opinion and further adopted the FRPTL proposed Advisory Opinion in its
entirety.

This opinion expanded the 1996
ruling and clarified by listing fourteen activities, which, if conducted by a
Community Association Manager, would constitute the unlicensed practice of
law. These include:

1. The
preparation of a certificate of assessment due once the matter is in collection
with the Association’s attorney, after a foreclosure action has been filed or
if a member of the Association has sent written notice disputing the assessed
amount.

2. Drafting
amendments to the constituent documents of an association.

3. Determining
the number of days required for any statutory notice.

4. Modifying
the state approve limited proxy form.

5. Preparing
any documents in connection with the approval of new members to any
Association.

6. Determining
the number of votes necessary to pass an amendment to the constituent documents
or the number of people necessary to establish a quorum.

9. Determining
through an examination of title parties to receive notice from the Association.

10. Any
activity that requires statutory or case law analysis to reach a legal
conclusion.

While these new rules do not greatly
expand the limitations on the activities of Community Association Managers,
they do clarify what limitations exist. However, in many cases, due to the
original vagueness of the Florida Supreme Court opinion, it was not clear what
activities would constitute the unlicensed practice of law. With the new
opinion, community Association Managers have a clearer understanding of what
they can and cannot do with regard to the enumerated items. Based on this new
decision, it is clear that Community Association Managers will need to consult
with an association’s attorney on a much more frequent basis in order to avoid
a violation of this latest decision.

Even merely ministerial functions
can be deemed to have crossed the line of what is illegal activity. Rather than
make that determination for themselves Community Association Managers will be
forced to seek legal counsel regarding such activities, potentially resulting
in additional fees and costs for associations.

Michael J Posner, Esq., is a partner in Ward
Damon a mid-sized real estate and business oriented law firm serving all of
South Florida, with offices in Palm Beach County. They specialize in real estate and can assist
Realtors and Community Association Managers in all legal matters. They can be reached at 561.594.1452, or at
mjposner@warddamon.com

Tuesday, October 6, 2015

Prior to 1985,
Florida subscribed to the legal theory of caveat emptor in connection with the
sale of real property, either residential or commercial. However, the law
changed as a result of the case of Johnson
v. Davis. In that case, Davis
entered into a purchase contract to purchase the Johnson’s home. The contract
allowed them to make a full inspection of the home. Prior to making the second deposit, Davis
discovered some peeling plaster around the corner of one window. When asked, Johnson
advised that they “had had a minor problem that had long since been corrected
and that the stains were wallpaper glue and the result of ceiling beams being
moved.”

Relying on that
statement, Davis paid the additional deposit and Johnson moved out. Thereafter,
Davis entered the home after heavy rain, and discovered water gushing from the
window and the roof. Roofers were brought in by both the seller and buyer and a
dispute arose as to whether the roof could be fixed or was fatally
defective. Davis sued, alleging breach
of contract, fraud and misrepresentation. Johnson counterclaimed seeking the
deposit. At trial, the court awarded the initial $5,000 deposit to Johnson,
gave the second deposit back to Davis and awarded no attorney’s fees.

Both sides
appealed, and the appellate court affirmed the return of the second deposit to
the Davis, but reversed as to the first deposit, ordering same to be returned
to the Davis and that Davis be paid attorney’s fees. This decision was appealed
to the Florida Supreme Court. The court
concluded that Johnson knew that the roof was defective and their failure to
disclose a material fact of a latent defect that they had full knowledge of
entitled Davis to rescind the contract.
The court went on to add, “The doctrine of caveat emptor does not exempt
a seller from responsibility for the statements and representations which he
makes to induce the buyer to act, when under the circumstances these amount to
fraud in the legal sense.”

Since that
decision, sellers have been obligated to disclose all material facts which
affect the value of the property. In
fact, the most common contract used in South Florida specifically states: “Seller
knows of no facts materially affecting the value of the Real Property which are
not readily observable and which have not been disclosed to Buyer.”

Since the Johnson v. Davis decision, the issue of actual
knowledge has become a bone of contention. For years it was not clear whether
knowledge meant “should have known” or actual knowledge. Under the theory of
should have known, sellers could not put their head in the sand and ignore latent
defects. However, recent case law indicates that actual knowledge is necessary
in order to impose liability under the
Johnson v. Davis standard.

In Jensen v. Bailey, a 2011 case, Bailey sued
two years after closing claiming that substantial improvements were done
without permits. Prior to closing, Jensen
had completed a disclosure statement which specifically stated, “NO” to the
following question of whether they were aware, “of any improvements or
additions to the property, whether by you or by others, that have been constructed
in violation of building codes or without necessary permits?"

After closing, Bailey
discovered that the French Doors installed by Jensen was done without a permit,
and further, that the work was not done properly. The trial court accepted the
fact that Jensen was not aware of the lack of a permit, but still imposed
liability under the Johnson v. Davis
standard, and awarded damages, interest and attorney’s fees. In reversing the
trial court the District Court found that to recover four elements must
exist: “(1) the seller of a home must
have knowledge of a defect in the property, (2) the defect must materially
affect the value of the property, (3) the defect must be not readily observable
and must be unknown to the buyer, and (4) the buyer must establish that the
seller failed to disclose the defect to the buyer.” In the Jensen case, it was
clear that three of the elements applied, but that knowledge was required to be
actual and not the “should have known” standard. Since the trial court had
accepted that Jensen was not actually aware of the lack of permits she could
not be held liable for failing to disclose the lack of permits.

The most recent
case on this issue is Eiman v. Sullivan. In that 2015 case, Eiman sold a piece of
vacant land to Sullivan based on an “As-Is” vacant land contract. After closing
Sullivan discovered that the property “contained a substantial amount of
wetlands, swamp lands and/or low lying areas that had been filled-in by Eiman,
or by persons working on Eiman’s behalf, and that a layer of muck existed below
the fill dirt which would either prohibit the construction of their home or
significantly and materially increase the cost for same.” The trial court agreed with Sullivan and
awarded damages in the amount of $65,000.00.
On appeal, Sullivan sought to show that Eiman knew or could have had
actual knowledge of the defect by their actions of removing certain trees and
their familiarity with the property. However, the appellate court found that
there was no evidence that Eiman had actual knowledge of the alleged defect and
this lack of this actual knowledge, proven at trial, was fatal to the Sullivan’s
case. The decision was reversed and no damages were awarded to Sullivan.

There are two lessons
to be learned from the preceding cases. First, perform good due diligence when
buying property by hiring appropriate experts to determine the condition of the
property as well as the status of all permits (or lack of permits) for any
improvements. The second is to ask the right questions and to obtain proper
written disclosures from your seller so that if there are latent defects of
which they are aware you have a record of whether they disclose same.

Michael J Posner, Esq., is a partner in Ward
Damon a mid-sized real estate and business oriented law firm serving all of
South Florida, with offices in Palm Beach County. They specialize in real estate law and
business law, and can assist buyers and sellers in loans and
purchases/sales. They can be reached at
561.594.1452 or by e-mail at mjposner@warddamon.com

About Me

I am a Florida Board Certified Real Estate Attorney with 30+ years of residential and commercial real-estate experience.
I am an equity partner in Ward, Damon, Posner, Pheterson & Bleau, a mid-sized law firm serving all of South Florida, with three offices in Palm Beach County. Our firm specialize in and can assist in buying, borrowing and selling property throughout South Florida. I can be reached at 561.594-1452, mjposner@warddamon.com or www.warddamon.com